Despite strong rallies in the last couple of sessions of the month, January turned out to be bad news for many markets. With a near unanimous move to tighter monetary policy across the globe and larger geo-political tensions than we’ve had for a while, the appetite for risk has fallen and with that so have equity prices. The S&P500 fell more than 5% in the month, whilst the Nasdaq had bigger problems on its hands and fell by closer to ten percent. These ‘problems’ include attitudes on the end of the pandemic and people consuming less technology when we are back out I the real world, as well as rising interest rates diluting the appeal of betting the house on big future revenue streams of currently loss making businesses. The UK was a bit of an exception to the rule with the FTSE 100 down less than 1%, which is down to the make-up of the index, with banks (who make more money in higher interest rate environments) and natural resources companies (who are having a field day with higher market prices) having a considerably large share of the index’s weighting. The question now is whether the market can settle down, establish that it’s still in a relatively low rate environment (even if we end up with base rates around 2% by the end of the year), and get to work on increasing share prices over the course of the year because, much like money in a bank, investors will be worse off in real terms if their assets don’t rise in line with inflation.
Interest rate rises might be viewed as unwelcome given what we have been used to over the last decade or so, but for some they can’t come soon enough. For example, Chairman of the Swiss National bank has said that he welcomes rates rising elsewhere around the world in the hope that it takes the pressure off the Swiss Franc, which last week set a seven year high against the Euro as investors pile into the currency, which has always been seen as a safe haven. Swiss National Bank were the first major central bank to turn rates negative, back in December 2014, and since 2015 have had a base rate of -0.75% in a bid to deter investors from stock piling Swiss Francs and keeping the currency stronger than they would like. It’s now a hope that with rates rising and the real spread between Swiss base rates and other central banks rising, investors will be happier to look elsewhere for safe havens.
Yesterday saw the long-awaited publication of the redacted version of Sue Gray’s report on parties at No.10 during covid lockdowns. Gray’s investigation into 16 gatherings found that “a number of [them] should not have been allowed to take place or to develop in the way that they did”.
The publication led to the PM facing widespread criticism from all sides of the political spectrum. On Johnson’s own side, major blows included former chief-whip Andrew Mitchel withdrawing his support after publicly condemning the PM’s actions in front of the Commons, government minister Angela Richardson resigning as Michael Gove’s ministerial aide, and ex-tory leader William Hague writing a damming article in the Times about Boris’ failure to adequately apologise.
Boris’ main line of defence came from the fact that the full report had not yet been published (given the Met’s ongoing investigation) and thus he could not comment fully on the alleged breaches of restrictions.
However, some MP’s argue that the Met Police were themselves late to the party, owing to their initial hesitation on launching an investigation into retrospective breaches of Covid – something they had previously not been willing to do.
One of the ongoing questions around the political fallout of party-gate is whether the PM knowingly mislead parliament and in doing so, broke the ministerial code. This is because on no less than three occasions, Johnson declared from the dispatch box that no such parties had happened or that any rules were broken. This was a red-hot topic during yesterday’s debate in the House of Commons and even saw the SNP’s Westminster leader, Ian Blackford walk out from the floor after declaring that Johnson had “wilfully, wilfully mislead parliament” – which under rules of the house, members are not permitted to accuse MPs of lying or misleading the house.
It is understood that after the parliamentary session (which overran such that Boris could not make his scheduled call with Putin to discuss tensions in Ukraine), the PM committed to publishing the full report after it is finally provided subsequent to the Met’s investigation.
As Gray stated in the report “it is not for me to make a judgment on whether the criminal law has been broken; that is properly a matter for law enforcement”. Hence, all eyes will now be focused on the Met’s investigation of 12 alleged gatherings and the prevailing level of support that the PM has from within the Parliamentary Conservative Party in the interim.
This morning we had a stronger than expected retail sales print out of Germany, which despite coming in at 0.0% was higher than the market’s prediction of -0.6%. With a poor Q4 GDP print last week, this may be a hopeful indication that consumer confidence is on something of an upward trajectory in Germany, however with an ongoing energy crisis and high levels of inflation, it’s outlook is concerning some analysts. Later today, we have the ECB’s bank lending survey which provides some colour on the financing conditions within the euro zone and PMI figures out of the UK, US and Germany.
Have a great day.